Annuity rates are on track for their biggest annual fall since 2002, the fifth
consecutive year in which they have declined.

Annuity rates are on track for their biggest annual fall since 2002, according to an authoritative report.

So far this year, average incomes generated by a standard annuity for a 65-year-old male have fallen by 8.6pc, Moneyfacts found. Unless annuity rates can stage a dramatic recovery in the fourth quarter, this will be the fifth consecutive year in which average annuity income has fallen.

Annuity rates fell to historic lows in all four months between June and September, according to the report, Moneyfacts Treasury Report: Personal Pension and Annuity Trends.

The third quarter witnessed sharp falls in annuity rates as the ongoing volatility in gilt yields sparked by a further round of quantitative easing and uncertainty over the eurozone led to a large number of rate reductions.

The average annuity income for a 65-year-old male fell by 4.1pc during the third quarter and by an even greater 4.8pc for a 65-year-old female, the report said.

The report also found that the annuity market had never been more uncompetitive. The choice of annuity providers offering the “open market option” to buyers shopping around remained at an all-time low, Moneyfacts said.

Growing numbers of retiring people are refusing to buy annuities at today’s disappointing rates of return.

Three and a half years ago, three annuities were sold for every four people turning 65. Now the figure is just one in two. As a result, almost a million potential annuity buyers have become “annuity refuseniks” since 2009.

In that year, 633,000 people turned 65 and 462,000 annuities were sold, along with 24,500 alternative schemes for taking a pension income, according to figures collated by Hargreaves Lansdown, the advisory firm. This means that 147,000 refused to buy anything. That number rose to 194,000 in 2010, 245,000 in 2011 and a projected 381,000 this year. The total number of people who rejected annuities over the four-year period is therefore predicted to be 967,000.

Over the same period the annual income available by spending £100,000 on an annuity has fallen from about £7,300 to £5,900, or by almost 20pc.